The data is still rolling in but the trend seems clear: Usage of Buy Now, Pay Later (BNPL) surged through the holiday season, fueled by younger shoppers keen to buy gifts and goodies for their loved ones (and perhaps themselves).

December’s numbers are not yet in but global BNPL usage grew 29% from a year ago during the late-November shopping period known as Cyber Week, which is traditionally packed with online discounts. This according to data from customer management company Salesforce.

PayPal reported more than 750,000 BNPL transactions on Black Friday, a nearly 400% rise from last year, while Afterpay said orders on Black Friday rose 34%.

Data from BNPL provider Afterpay revealed a resurgence in shopping at brick-and-mortar stores through the October-through-December period. In-store purchases rose a hefty 384% year-on-year, with a one-day gain of 442% on Black Friday, the day that follows U.S. American Thanksgiving and the traditional launch of the holiday sale season in many countries.

The move back to physical stores is a trend retail experts expect to persist into the new year, as pandemic restrictions ease. And as shoppers return, they will be demanding a more seamless interrelationship between in-store and online experiences and offerings. Several BNPL providers, Afterpay among them, launched in-store options last year.

Final retail sales data are expected to bear out these trends, particularly given that a growing complement of consumers said they planned to use the option in pre-holiday surveys.

And retailers are responding to growing consumer awareness of – and demand for – BNPL options.  Major players such as Walmart, Target and Amazon have signed alliances with BNPL companies, and expectations were high going into the season they would promote BNPL to shoppers in the holiday season and beyond.

After all, the benefits for retailers are plentiful.

We know that customers offered a BNPL option at check-out tend to pile more goods in their digital carts, are as much as 30% more likely to end an online shopping trip with a purchase, and show greater loyalty. Indeed, the average total expenditure per customer is as much as 30% to 50% higher when BNPL is on offer, research shows.

BNPL shoppers are more likely to be more generous gift-buyers than their pay-at-checkout counterparts. In fact, in good news for retailers, at the start of the season, 35% of BNPL shoppers said they planned to spend $500 or more on holiday purchases, compared with 25% of the overall public.

The more the merrier

And savvy e-commerce shoppers, having grown less tolerant of clunky retail platforms and poor service, are less likely to abandon their shopping carts when they can take advantage of a wider range of payment options.

To help make the most of this trend, fintech providers like Optty can boost the convenience quotient by aggregating BNPL providers, therefore enabling retailers to offer multiple options to consumers through a single integration. This lets retailers add new partners quickly and broaden their payment offerings for customers.

Proprietary Optty data suggests that offering more than one BNPL option makes it even less likely that browsers will leave empty-handed. This is because customers are more likely to abort purchases if they are declined by a BNPL and have no other option available. In fact, our data shows that 40% of customers view and try at least three options before going ahead. So retailers looking to maximize conversion rates should think about providing at least a trio of choices at checkout.

Along the same lines, our data also show that when customers are approved by a new BNPL on a retail site, they are more likely to make a return visit using the same provider, often increasing the value of their basket significantly.

We also find that many customers will jump to a new BNPL when incentives are offered, such as a "4th payment free" option. That strategy has worked well for Klarna, which offers a 4th payment free or 25% off to new joiners.

Caveat emptor

But caveat emptor – and venditor: buyers and sellers both should be aware that all this convenience can lead shoppers to take excessive financial risk, which in the long run is good for neither consumers nor retailers. Vendors and BNPL providers alike should take this seriously, since nothing stops a shopper cold like a mountain of unmanageable debt.

Optty’s anonymised data shows that when shoppers max out their credit with one BNPL provider, they will quickly move on to another and often win swift approval to complete their purchase. The option is quick, efficient … and for some buyers, a problem.

A credit check by a BNPL provider, not to mention a late BNPL payment, can mar a consumer’s credit score. On the other hand, buying with BNPL can help protect a credit score by slowing the consumer’s utilization of other credit.

Retailers can send a message of assurance and confidence in BNPL by clearly setting out the terms and conditions for each provider, such as the payment schedule, monthly fees, late fees and interest rates (if applicable), on product pages and checkout sites, so customers can make informed (and hopefully wise) choices. These conditions vary depending on the BNPL provider, and customers should be aware when credit checks or monthly fees apply.

Responsible retailers should consider reminding shoppers to review the conditions of the BNPLs they use, and offer encouragement to pay off outstanding balances when they have the cash to do so. This is especially important with BNPLs that allow customers to set their own repayment schedules (often with attendant monthly charges). It’s also a good idea for customers to switch on push notifications that will alert them when payments are due.

For its part, Optty has created a way for retailers to lend more responsibly by using fully customisable widgets on product pages and during checkout, and providing free text space to inform customers of all terms and conditions.

If used with due care, BNPL can be a boon for younger consumers who, although they have an adequate income, lack the credit track record to access traditional options. It also helps retailers broaden their customer base, increase loyalty and maximize convenience.

One thing seems clear as we leave the shopping season behind and peer into the year to come: BNPL, used responsibly, can provide huge benefits to consumers and retailers alike.

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